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Apple

Apple

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Published by Tapas Kumar Paul

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Published by: Tapas Kumar Paul on Jan 30, 2013
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03/27/2014

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Has Apple peaked?
The world’s most valuable firm may be past its prime
 
Jan 26th 2013 |
SAN FRANCISCO
|
 of The Economist
TECH blogs are abuzz. Pundits are busy pumping out predictions. The company that makes the newdevice that is attracting so much attention is teasing reporters by being coy about its innovative
features. Apple’s product launches are always like this. But this time the fuss is not about an Appleproduct: it is about Samsung’s lates
t Galaxy smartphone, which is likely to be launched in March.Stiffer competition in smartphones and tablets from the likes of Samsung has spooked investors in Apple. They got another fright on January 23rd when the firm revealed that its latest quarterly profitof $13 billion was flat because of higher manufacturing costs. That triggered a rout in after-hours
trading: at one point some $57 billion was wiped off Apple’s market capitalisation, roughly the
equivalent of the entire value of Ford, a carmaker.
 Apple’s shares have been mauled by bears many times before (see chart 1), but they have alwaysrecovered. The big question on many investors’ minds is whether the firm can rebound again. Twothings have whetted the bears’ appetites.
 First, Steve Jobs, Appl
e’s founder and creative genius, is dead. The iPhones and iPads he sired still
generate gargantuan profits. But his successor, Tim Cook, has yet to prove himself capable of 
bringing new breakthrough products to market. Second, Apple’s fantastic profit marg
ins
38.6% onsales of $55 billion
attract competitors like sweetshops attract six-year-olds.
The company’s fans pooh
-
pooh the idea that Apple has peaked. The firm’s price
-earnings ratio
11.6 at close of business on January 23rd
is not much different from M
icrosoft’s (see chart 2). Thatmakes Apple’s shares look relatively sexy. Unlike Microsoft, which depends heavily on the ailing
personal-computer business, Apple concentrates on sectors that are growing fast, such assmartphones and tablets. Only one of 60
analysts tracked by Bloomberg had a “sell”recommendation on Apple before this week’s stockmarket fallout.
 
 
 
 A drizzle of negative news had already dampened investors’ ardour before this week’s earnings
announcement. Apple bungled the introduction of its new mapping app, and there were rumours of cuts in component orders for the iPhone 5. But iBulls still expect sunshine this year: news of newgizmos that Apple has created and new markets it is set to disrupt.One of those gadgets is likely to be a much cheaper iPhone aimed at emerging markets. In China,where some men have reportedly been dumped for failing to buy their girlfriends iPhone 5s, Applesold 2m of its top-of-the-range devices over its launch weekend last month. However, most Chinese
shoppers can’t afford the things. Barclays, an investment bank, reckons Apple could produce an
iPhone for less than $150 to broaden its appeal.The firm has played down reports of a cheaper iPhone, but Apple-watchers expect anannouncement this year. Slimmer profit margins in China and India may be worth it to woo millionsof new buyers. Apple is said to be close to a distribution agreement with China Mobile, a carrier witha hefty 700m subscribers. News of a deal may boos
t Apple’s shares.
 Yet the best way for the company to prove it is not past its prime would be for it to disrupt another 
big market. Since Jobs’s death in 2011 Apple has concentrated on sprucing up its existing products.
Now investors want to see it conjure up entirely new ones. All eyes are on television (though Appleis also exploring the potential of other markets, such as wearable computing: see 
). Mr Cook
says television is an area of “intense interest”. He told interviewers that when he switches on the TVin his living room, he feels like he has “gone backwards in time by 20 or 30 years.” This fuels
expectations that Apple will launch an iTV later this year.

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